Public Need for Facility

SMUD relies on PG&E’s gas transmission system to support its gas-fired power plants. If gas deliveries to SMUD’s power plants are disrupted, SMUD may have insufficient power to meet customer load and would need to curtail or buy electricity from other sources. In theory, SMUD’s use of the proposed project serves as a contingency plan if it experiences a gas-service interruption. SNGS argues that the Avondale/Glen Elder site offers a cost effective location to reinforce the reliability of gas supply to customers such as SMUD. SNGS also contends that alternative project sites are economically infeasible. The draft CPUC decisions confirms that gas-field alternatives economically infeasible, noting that none of them would generate positive cash flows or net income. Finally, SNGS argues that SMUD’s interest in using the SNGS storage facility demonstrates a compelling need for the proposed project.

But a May 4, 2012 draft decision from Commssioner Florio noted that “… such an interruption or curtailment is unlikely as evident by the evidentiary record,” pointing to SNGS’ acknowledgement of the low probability of a gas-supply interruption. Only about a third of SMUD’s gas supply is subject to PG&E gas rules on curtailment – a process where gas is diverted in case of an emergency. If such an emergency would occur, SMUD would still receive the rest of its gas on lines that it co-owns. SMUD also has in place significant demand-side management capability in case of any emergencies or transmission and generation delays. (Watch a former SMUD employee’s comments above regarding the need for the facility.) According to the California Energy Markets (CEM), an industry news periodical, their article outlines how the CPUC has approved applications for several new gas-storage fields over the past few years since SNGS’ application, including the Gill Ranch Storage Project, the Wild Goose Storage expansion and the Central Valley Gas Storage Project. The CEM also reported that the Federal Energy Regulatory Commission (FERC) approved the Tricor Ten Section HUB storage project adding even more storage capacity to the area. The Florio decision recognized that while the risk of gas delivery interruption is small, significant impacts on users of SMUD’s gas-fired electricity could occur. However, Commisioner Florio notes in his draft decision “… we also understand that, while the risk of gas migration from the proposed project is small, the results of such migration could be deadly, catastrophic and long-term.”

Commissioner Florio states that overriding considerations are necessary to approve a project where significant risks are present. Likewise, Commissioner Ferron commented at the July 12, 2012 CPUC hearing that the existence of contracts for using the storage facility should not be equated with need. Ferron argues that the commission must go beyond a presumed need for the project and require more compelling evidence of conditions that warrant the approval of the SNGS application. He states that the unavoidable risks found in the EIR do not outweigh the presumed needs, especially since the probability of curtailment or gas delivery interruption to SMUD is small. The SNGS storage use contract with SMUD does not sufficiently demonstrate the presence of urgent conditions that necessitate the SNGS project. Although the facility is desirable, Ferron states that it is clearly not essential, especially given the severity of the risks to resident.

Commissioner Sandoval similarly states that a balance of needs versus potential harms is warranted. She says that there are a number of financial instruments that can be used to hedge against economic conditions currently facing energy providers and that hedging financial risks can be handled without the use of storage facilities. Regarding the need to forestall risks against gas shortages, Sandoval points out how Pacific, Gas and Electric transmission pipelines to the north, south and west of the area provide SMUD access to gas and states that it is highly unlikely that an acute transmission disruption would occur in all three lines, hence calling into question claims for the proposed need of the project. Commissioners Florio, Sandoval and Ferron all concluded that the limited need for the storage project does not outweigh the risks.

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